DME drops fuel oil plans to focus on crude

Dubai, April 11, 2013

The Dubai Mercantile Exchange (DME) has dropped plans to offer fuel oil trading to focus on increasing volumes of its Oman crude oil futures to the point where big Gulf oil producers want to price off them, the DME's chief executive said.

The exchange, which trades DME Oman Crude Oil Futures Contract (OQD), late last year was considering the introduction of fuel oil trading.

But after getting lukewarm feedback from customers, it has decided to stick to making Oman crude the price benchmark for Middle East crude sales to Asia.

"We are going to focus on OQD. It's really important that we continue to grow the market and we have been very successful, we've had six months of month-on-month growth," Chief Executive Officer Christopher Fix said.

"I want to ensure that we continue along the development of crude and not right now split the market's attention between crude and other products. So we do not have any formal plans right now to move forward with another product," he said in an interview.

Since joining the DME at the end of August 2012, Fix has focused on increasing the number of financial players - banks and hedge funds - that trade on the exchange. Only around 9 percent of DME volumes are traded by financial players.

RBS Securities joined as a clearing member on April 8 and the exchange now has 64 users, up from around 50 a year ago.

Fix, who spent 20 years at BNP Paribas before joining the DME, said more financial players were in talks to join but declined to name any until they had officially signed up.

"We are interested in having a dialogue with any NOC that is looking at pricing issues. That hasn't changed. What's changed is that we think the best way of attracting those potential users of the exchange is by having a better basis on the exchange itself," Fix said.

"When we have critical mass and we have the liquidity down the curve and we have better bid offer spreads and we have the better open interest, then producers are going to say 'this is a better mousetrap, this is what I'm convinced about'," he said.

"The meaningful dialogues and meaningful look at making a decision towards changing the pricing will occur then."

LONG TERM

The fuel oil contract idea has been shelved, in part because of the headaches that large amounts of sanctioned Iranian fuel oil being traded around the region could cause.

But if DME Oman can establish itself as the main benchmark for crude sales to Asia, where most Gulf oil goes, the DME will look again at expanding into other products.

"We see ourselves as a major pricing source for east of Suez trade flows and in the future, as we develop, other products that can also fit into that game plan will be looked at," Fix said when asked if the exchange might develop a liquefied natural gas (LNG) contract.

"But there's nothing in terms of a specific contract on the table whether it be fuel oil or LNG."

Fix is optimistic that after a few difficult years, the outlook for Dubai as a financial hub is looking up again, due to Europe's economic problems and the Gulf's role in supplying the fastest growing oil markets of Asia.

"We are coming into a very strong period where our exchange is growing and all the other commodities exchanges are having slowdowns," he said. - Reuters